ONGC, the country’s biggest oil and gas explorer, is aggressively bringing on-stream delayed projects. The PSU firm has completed projects worth R26,518 crore till the second quarter of FY15, shows a government review.

ONGC is now working on projects worth R83,974 crore across its exploration areas. But several of these projects are facing in ordinate delays, which would push up cost by around 14.91% to R96,494 crore, shows the ministry monitoring cell (MMC) review report of October 2014.
Development of many small and cluster fields have been delayed. For instance, the ONGC board on March 25, 2010 approved development of cluster-7 fields in Mumbai offshore, at a cost of R4,550 crore, to be completed by March 2013. This project has been delayed by 21 months, or nearly two years, and is now expected to be completed this month, resulting in a 46% increase in expenditure. The revised project cost is estimated at R6,639 crore.

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Other projects such as development of B-193 cluster fields in western offshore, which was approved by the company’s board in 2007 and was to be completed in 2010, is running close to five-years behind schedule. The project that has been completed 94% is now targeted to be completed by May 2015, with an 85% increase in costs to R6,000 crore, from the initial approved cost of R3,249 crore.

The delay in the implementation of these projects is forcing ONGC to struggle against the falling output from aging fields, and no incremental production is coming from new blocks bagged under the New Exploration Licensing Policy (NELP) auction. The biggest exploration company in India saw it stand-alone crude oil output fall from 24.67 million tonnes in FY10 to 22.25 mt in FY14. Gas output has increased only marginally from 23.11 billion cubic metres in FY10 to 23.28 bcm in FY14.

The review observed that several issues are holding up projects, like the slow progress in engineering and installation, technological hiccups, conflicts claims and counter claims by contractors, and delay in material supply.

It has come to light that in many cases, ONGC had to terminate contracts after the contractor failed to submit performance bank guarantee and counter claims. Re-tendering of the work takes time and delay in completion of the projects.

The silver lining is that the public sector explorer has seen the crude oil output from its Western Offshore region, which contributes 42% of India’s domestic production, going up by almost 11% in the current financial year. The output from Western Offshore assets comprising such as Mumbai High, Heera, Neelam and NB Prasad has increased to 316,000 barrels per day now against 285,000 bpd in the beginning of the financial year.

Petroleum minister Dharmendra Pradhan reviews the performance of PSU firms in the first week of every month. Tired of in-ordinate delays in the implementation of projects by the oil PSUs, the petroleum ministry has decided to take stringent actions. The nodal ministry has ordered the companies that the responsibility for the completion of each project ‘should be assigned to a functional director and the performance of the assigned officer shall be recorded in his annual report.’ This in a way means that if the functional director fails to keep the project’s pace, it may affect his chances of promotion.

Recently, ONGC too has decided to overhaul its entire procurement process. The company’s board has given a go-ahead to implement the Boston Consulting Group (BCG) recommendations to select the “most economically advantageous” tender instead of just the lower cost one, as has been the practice.

According to the company, the new mechanism would bring a strategic view to procurement, improved vendor management and accuracy in budgeting.